New tariff proposals put solar in 'a land of complete uncertainty' ahead of ITC hearing

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The U.S. battle over solar panel imports goes into its next round Tuesday before the U.S. International Trade Commission (ITC), with two manufacturers easing their request for penalties on imports and opponents of such measures offering alternative solutions, including a licensing fee for imports.

While both sides aim to assist the U.S. solar industry, the changes to proposed remedies for addressing the ITC's Sept. 22 finding that cheap solar panels have injured U.S. solar manufacturers only increases uncertainty for the U.S. solar sector, and the hearing today before the ITC will likely do little to ease it. The latest proposals were outlined in briefs due to the ITC by Sept. 27.

SolarWorld, a German-owned U.S. company, and Suniva, a now bankrupt Chinese-owned U.S. company, filed a petition for relief with the ITC earlier this year, claiming U.S. solar manufacturing could be lost without protection. But a wide-ranging coalition of U.S. policymakers and business leaders say such protection would cause solar module prices to rise significantly and threaten thousands of U.S. jobs.

After today's remedy hearing to air that debate, the commission will send its endorsed remedy or remedies to the President by Nov. 13 for a final decision by early 2018.

“This guarantees another 90 days or more of uncertainty, assuming the president takes time to think about it,” said Morten Lund, a partner at Stoel Rives and former chair of the law firm’s Solar Energy Initiative. “The commission could impose no remedy, or a token remedy, but, most likely, it will propose a remedy. The president is likely to approve it, but we never really know what he will do until he does it.”

That makes it impossible to plan substantively, Lund said. “We could plan a response to the proposed tariff, despite its harshness, but this president might decide to change it, so we’re in the land of complete uncertainty.”

Petitioner proposals

Recommended remedies from the ITC can provide “trade relief” in the form of tariffs, quotas, and/or “adjustment measures.”

Suniva and SolarWorld initially proposed a $0.40/watt tariff on imported solar cells and a $0.78/watt floor price on imported modules for the 4-year remedy period allowed by the relevant statute. They are now proposing tariffs that start at $0.25/watt for solar cells and drop to $0.235/watt in four years. For solar modules, they want tariffs that start at $0.32/watt and fall to $0.29/watt in four years. These proposed tariffs would be added to tariffs already imposed in 2014 at the behest of SolarWorld.

Suniva’s latest proposal also includes a revised floor price of $0.74/watt for solar modules that drops to $0.64/watt in four years. And SolarWorld requested 2018 quotas of 0.22 GW on imported cells and 5.7 GW on imported modules. Both would also ratchet down.

Potential remedy impacts

Tariffs will stabilize prices, allowing U.S. producers “to ramp up production and capacity” and bring foreign investment into the U.S. market, SolarWorld argued in its brief. Import quotas will drive market share to domestic manufacturers and help prevent circumvention of the tariffs, which neutralized those imposed in 2014 on Chinese and Taiwanese solar manufacturers, it added.

Anti-circumvention proposals will also prevent U.S. Free Trade Agreement partners, including Mexico and South Korea, from interfering with the new remedies, Solarworld argued. Together, the remedies will “create a minimum of 35,000 jobs, nearly 10,000 of which are direct manufacturing jobs."

These “adjustments” also will make it possible for U.S. manufacturers to fund new R&D, reach new cell and module efficiencies, and meet long-term supply contracts, it said.

Finally, SolarWorld argued the proposed remedies will allow for the creation of “at least 5-6 competing U.S.-based cell/module producers” with “1 GW or more of capacity."

With that growth, U.S. producers could “supply all U.S. military and federally funded projects” cost-competitively and export a substantial portion of yearly production. In addition, U.S. production operations for upstream inputs will meet “a growing portion” of domestic manufacturers’ needs.

Tariffs and quotas will force “a market correction" and move the module price “to where it should have been all along,” Mike Mckecknie, president of West Virginia-based solar builder Mountain View Solar, told Utility Dive. “There will be a global manufacturing redistribution and, probably, job reductions. But it will stabilize the market,” he said.

As a commercial-industrial and residential installations contractor, Mckecknie said he has seen enough cost numbers to convince him large developers “will continue to build.” Their returns will be reduced “but that will not stop them.”

He expects the market correction to be short-lived because the price of electricity will continue to rise, keeping higher-priced solar competitive.

Edward Harner, chief operating officer of California-based Green Solar Technologies, agreed. He does not expect to reduce the company's 150-person workforce or its 150 installer-partners. “The solar landscape is going to change,” he said. “There will be consolidation and the barrier to entry to the solar business will be higher. But the job loss forecasts are overblown.”

Harner said the module price will return to where it was in 2014-15. “We did fine two years ago and solar kept growing.”

The module price is only a small part of the system price, he said. Even if the price goes up 50% because of tariffs, a typical 4 kW system, with incentives, will go up less than 7%. “Payback will only go from 10 years to 11 or 12 years, and that is not significant enough to make solar a bad investment.”

Industry harm

On the other side of the debate, the Solar Energy Industries Association's pre-hearing brief argued “trade-restrictive relief” is not the answer. It will not help U.S. cell and module manufacturers “become viable” but will “cause harm to the rest of the solar industry.”

Low-priced imported modules were not the main reason Suniva and SolarWorld had to petition the ITC for relief, SEIA has repeatedly argued. “The companies made a strategic decision to focus on the market’s residential and small commercial segments, thereby missing the opportunity to benefit from massive utility-scale segment growth.”

Other “missteps” in the residential and small commercial segments also led to their lack of profitability, the SEIA filing added. “Lack of scale, poor technological bets, and problems with quality, timeliness, and adequacy of supply” also contributed.

According to SEIA, trade laws limit tariffs to 50% of product cost, which would keep the ITC remedy for cells to no more than $0.10/watt and for modules to $0.21/watt. That would cause a potential loss of “tens of thousands” of non-manufacturing solar jobs that cell and module producers “depend on for their livelihoods.”

And the relief requested by Suniva and SolarWorld would not return them to competitiveness. “The capital this industry needs to restructure will not be conjured into existence by trade relief,” SEIA argued. U.S. module manufacturers are especially restricted because they largely do not compete in the utility-scale solar module market.

Damage to the utility-scale market could, however, result in a threat to smaller installers. Even a relatively limited price increase could compromise utility-scale solar’s competitiveness with natural gas. “Electric providers and end users” would likely “look elsewhere for cheaper power,” SEIA observed. This would further depress demand, drive prices higher, and threaten more jobs “across the value chain.”

Industry attorneys offered further arguments against the proposed remedies from Suniva and SolarWorld.

Paul Nathanson, a senior principal in the D.C. office of Bracewell, said tariffs and quotas could result in a complaint to the World Trade Organization. “If they impose economic harm on an important U.S. trading partner, WTO-authorized retaliatory tariffs could be aimed at industries in states the president needs in the 2020 election.”

Stoel Rives' Lund recalled that President Bush imposed harsh tariffs on steel imports in 2002 but had to terminate them early. “They were harming the auto industry more than they were benefiting the steel industry and it was a net loss to the U.S. economy,” he said. “That’s the solar coalition’s argument in this case.”

Inferior growth

Hugh Bromley, lead U.S. solar analyst at Bloomberg New Energy Finance, said that even with a tariff, the solar industry will grow and add to its current estimated total of 260,000 jobs. The important question is how many fewer jobs would be created if there is a tariff than there would be in a business-as-usual case without it.

“The current generation of PV cell production facilities require around 800 personnel per GW of annual production capacity,” he told Utility Dive via email. He expects current U.S. local demand to require about 8 GW of new production capacity.

That means a “maximum of 6,400 jobs” could be created in manufacturing, Bromley calculated. But with a tariff driving prices up and demand down, “downstream job losses would almost certainly exceed any manufacturing gains,” he wrote. And it is likely much of the 8 GW of required local capacity would grow offshore jobs rather than U.S. solar manufacturing jobs, he added.

These numbers add to SEIA’s argument that the petitioners’ proposals fail “two critical statutory requirements.” Any remedy, SEIA argued, must “effectively assist the domestic industry” and “cause greater economic and social benefits than costs.”

Common ground?

SolarWorld recommended enforcement measures to prevent the tariffs and quotas from being “fatally compromised” by circumvention. It also suggested that loans and grants could “stimulate U.S. solar manufacturing innovation, R&D, and growth.”

Loans and loan guarantees were among six non-tariff measures suggested by GTM Research to assist U.S. solar manufacturers. Another was a more targeted federal investment tax credit to grow domestic manufacturing and the domestic supply chain without driving up solar’s installed cost.

Steve Ostrenga, vice president for sales with module manufacturer Seraphim Solar, said a production-based incentive would better support U.S. manufacturers.

Ostrenga and Generate Capital President Jigar Shah suggested using the estimated $1.5 billion to $2 billion in duties collected in a previous solar tariff case to fund manufacturing incentives.

Ostrenga, SolarWorld and SEIA agreed on three ideas. One is expanded solar procurement targets for federal agencies and the military, another is funding workforce training, and a third is support for research and development.

Most significantly, SEIA is now proposing an innovative licensing fee for imports. A 0.5% fee could generate $192 million and a 1% fee would raise $384 million in revenues, SEIA said. The money could “come straight from foreign manufacturers and be delivered to American manufacturers.”

Such a fee could “facilitate positive adjustment to import competition without the damaging effects on the broader solar industry,” SEIA said.

Pervasive uncertainty

While the uncertainty for the U.S. solar sector is pervasive, one thing is predictable, Stoel Rives’ Lund said. “Donald Trump likes winning and he likes attention. A big press conference announcing big tariffs on the whole world, particularly China, would make him happy. If he changes his mind and lifts them later, he can say he negotiated something else awesome and that’s another win for him.”

The White House did not respond to requests for comment.

Given the uncertainty, solar industry players are making some moves in advance of the President's decision. But some steps are considered less likely.

Both Taiwan-based TSEC Corp’s Robin Chein and India-based Sonali Solar’s Gina Cofone told Utility Dive they are scrambling to meet a flurry of module orders as distributors and installers warehouse inventory at current, historically low prices. Both companies are also considering the possibility of new U.S. facilities, they added.

However, a possible short implementation timeline will likely deter companies from adding U.S. facilities, considering it could take as much as four years to get a facility operational — about as long as the tariffs could last, according to Shayle Kann, senior vice president of research for GTM Research.

Meanwhile, Duke Energy, the Fremont, Nebraska, municipal utility, and Wisconsin’s Madison Gas and Electric told Utility Dive the possibility of a tariff has forced them to reconsider current planning for solar.

Diane V. Denton, Duke Energy’s managing director of federal policy, told the ITC that “unwarranted tariffs” would be “a terrible precedent for future trade cases” and are likely to disrupt Duke Energy plans to invest just as solar is “approaching parity with the traditional grid resources.”

Any remedy will include stipulations that will impact different solar industry players differently. “And there are indicators in every direction,” Lund noted.

The bottom line: The global solar marketplace is waiting for the U.S. to resolve solar’s family feud with appropriate remedies; the key word being “appropriate.”